Challenges Faced by the Accounting Profession in Developing Nations

1. Challenges Faced by the Accounting Profession in Developing Nations Mexico City, Mexico June 2007 Tony Hegarty Chief Financial Management Officer Head of Financial Management Sector Board The World Bank

2. The World Bank GroupWorking for a world free of poverty

3. Poverty Reduction: Global Challenge • 1 billion people live on less than $1 a day • 2 billion do not have access to clean drinking water • 200,000 children under 5 die each week of treatable and preventable diseases • Globally, 1 child in 4 does not finish primary school, and in Africa almost 50% do not • 70% of the world’s poor are in Middle Income Countries

4. Millennium Development Goals • Endorsed by 189 countries at the UN Millennium General Assembly in Sept 2000. • Aim to halve the proportion of people in extreme poverty by 2015. • Set targets for reductions in poverty, improvements in health and education, and protection of the environment.

5. Millennium Development Goals “The Millennium Development Goals offer concrete targets for everyone to rally around in the global fight against poverty. But reaching the goals will require action from both developed and developing countries.” Jeff Gutman VP, OPCS The World Bank Developed countries must boost foreign aid to the developing world, remove barriers to the exports of developing countries, encourage private investment, and make the benefits of science and technology available to all the world's peoples. Developing countries, meanwhile, must put in place the right economic policies, work to improve governance, invest in their people, and create an enabling environment that is conducive to growth and development.

6. Gleneagles Summit, Scotland: July 2005

7. Governance, Poverty Reduction, Financial Management Citizens/Firms • Political Accountability • Political competition, broad-based political parties • Transparency & regulation of party financing • Disclosure of parliamentary votes • Civil Society & Media • Freedom of press, FOI • Civil society watchdogs • Report cards, client surveys • Formal Oversight Institutions • Independent, effective judiciary • Legislative oversight (PACs, PECs) • Independent oversight institutions (SAI) • Global initiatives: UN, OECD Convention, anti-money laundering • Effective Public Sector Management • Ethical leadership • Public finance management & procurement • Civil service meritocracy & adequate pay • Service delivery and regulatory agencies in sectors • Private Sector Interface • Streamlined regulation • Public-private dialogue • Extractive Industry Transparency • Corporate governance • Collective business associations Citizens/Firms Citizens/Firms • Decentralization and Local Participation • Decentralization with accountability • Community Driven Development (CDD) • Oversight by parent-teacher associations & user groups • Beneficiary participation in projects Outcomes: Services, Regulations, Corruption Citizens/Firms

8. GAC Consultations (Nov. 2006 – Jan. 2007) Europe Brussels, the Hague, London, Madrid, OECD, Paris, Rome, Stockholm MNA Egypt, Morocco, Yemen ECA Albania, Bulgaria, Georgia, Moldova, Russia North America Ottawa, Washington DC (IMF, MDBs, US Government, CSOs, private sector, unions) EAP Australia, Cambodia, China, Japan, Indonesia, Lao PDR, Mongolia, New Zealand, Philippines, Vietnam, Thailand LAC Argentina, Bolivia, Dominican Republic, El Salvador, Guatemala, Mexico, IACC SAR Bangladesh, India, Nepal AFR Burkina Faso, Botswana, Cameroon, Kenya, Mauritania, Mozambique, Rwanda, Senegal, Tanzania, Uganda. Planned: Congo-Brazzaville

9. Governance & Anticorruption (GAC) Key Elements of World Bank Strategy Global Level Working with development partners, sharing experience & addressing transnational issues Country Level Deepening support to countries to strengthen governance Project Level Combating corruption in World Bank Group operations

10. Governance, Poverty Reduction, Financial Management Improved FM capacity is at the core of good governance and lies at the heart of achieving the MDGs/poverty reduction: ensuring that public and donor resources are used efficiently, effectively and transparently for intended purposes.

11. Diagnosis of Country PFM Systems? • A CFAA a diagnostic tool to enhance the knowledge of PFM in client countries. • It supports fiduciary responsibilities by identifying the strengths/weaknesses of PFM so that potential risks to funds can be assessed/managed. • It supports development objectives that lead to the design and implementation of capacity building programs (Action Plan) to improve a country’s PFM diagnostic tool fiduciary responsibilities development objectives Action Plan

12. ECA EAP MNA LCR SAR AFR PFM Diagnostics Completed: over 100

13. PFM Diagnostics: Emerging Cross-cutting Issues • Incomplete Budget Information • Inadequate Accounting Systems • Obsolete Legal Framework • Ineffective Internal and External Audit • Poor dissemination of PFM information • Shortage of qualified PFM Professionals • Barriers to IFMIS Mostly due to weak capacity Mostly due to weak capacity

14. International Financial Crises Foreign exchange crisis Stock Market crash Corporate bankruptcy Bank failure Property Market collapse Economic crisis Increase poverty Weak Financial Systems

15. International Response: Standards & Codes Policy Transparency • Data Transparency • Fiscal Transparency • Monetary and Financial Policy Transparency Financial Sector Regulation & Supervision • Banking Supervision • Securities Regulation • Insurance Supervision • Payments Systems • Anti-money laundering The World Bank Market Integrity • Corporate Governance • Insolvency and Creditor Rights • Accounting • Auditing

16. What is an Accounting and Auditing ROSC? strengths/weaknesses • Evaluates strengths/weaknesses of institutional frameworks • Assesses comparability of national with IFRS/IAS and ISA • Examines compliance with standards in practice • Supports the preparation of development action plan for enhancing accounting and auditing standards and practices comparability compliance development action plan

17. ECA EAP MNA LCR SAR AFR ROSC A&A Reviews Completed: 62

18. Mexico Paraguay Jamaica Guatemala Honduras Peru Uruguay Argentina El Salvador Brazil Ecuador Colombia Dominican Republic Chile ROSC A&A Reviews in Latin America & Caribbean: 10 + 4 being finalized…

19. ROSC A&A: Emerging Cross-cutting Issues • Outdated legal frameworks • Weak accountancy professions • Widespread non-compliance with standards • Weak monitoring/enforcement mechanisms • Lack of access to international standards • Inadequate training and curricula • Non-availability of implementation guidance and practice manuals Mostly due to weak capacity Mostly due to weak capacity

20. From Diagnostics to Implementation How do we get there? Fromdiagnostics to capacity development

21. Capacity Development: Follow-up Involves Collaboration/Partnership Government Country Stakeholders Donors World Bank

22. Integrated Capacity Development Plan(Example: Country Action Plan) Statutory Framework Oversight, Monitoring & Enforcement of Standards Education & Training Auditing Standards & Actual Practices Accountancy Profession Accounting Standards & Actual Practices

23. Guiding Principles for Capacity Development • Country leadership and ownership • Tailor-made capacity development design • Comprehensive programme design and implementation • Coherent and coordinated donor support

24. Building FM Capacity: Harmonization and Global Partnerships • Donors are harmonizing fiduciary requirements and are aligning those with strengthened country PFM systems • MDB • OECD-DAC JV-PFM • Donors are supporting FM capacity building initiatives in various countries • Donors are supporting international FM organizations: • IFAC • INTOSAI • IASB • IFAC Developing Nations Committee

25. Building FM Capacity: How Can the Accountancy Profession Contribute? • Complying with IFAC membership obligations (SMOs) • Supporting IFAC’s Developing Nations Committee • Providing advise/technical support to governments/donors • Training/Certification of more accountants (levels) • Addressing specific needs of the public sector • Ensuring compliance with accounting/auditing standards

26. Summary and Conclusion • Poverty reduction is primary global development challenge • MDGs created a powerful compact for fighting poverty. Reaching them will require accelerated and concerted actions from developed and developing countries • Improving governance and financial management • FM capacity development • Partnership required in support of country led strategy